October/November, 1998

From the Editor

Examining The European Market

Whether or not a market exists for U.S. products in a particular country is often as much due to the political arrangements that prevail as it is to anything inherent in the product. For many years, the U.K. and Finland were strong markets for many U.S. agricultural products. Following these countries’ entry into what is now the European Union, agricultural products of the United States were at a disadvantage in competing with the same products from within the European Union.

The common Agricultural Policy, as Europe’s scheme of subsidy and protectionism is called, has, from the very beginning of the old Common Market, been an essential component of the drive for European unity. Often derided as a massive transfer of funds from German companies to French farmers, the fact is that, more than any other single factor, it has been Germany’s willingness to subsidize inefficient agriculture that has greased the way for European unity.

Today, however, challenges face Europe and the common Agricultural Policy as never before.

The great challenge is how to deal with the many Eastern European countries that yearn to become part of the European Union. The political case for making entry easy is unassailable. It is by becoming a part of the European Union that we can expect nations such as Poland, Hungary and the Czech Republic to become firmly anchored to Western interests and values.

Even economically, the entry of Eastern European countries into the European Union will be beneficial. By expanding the Union to cover a wider trading area, there are more opportunities for trade and more instances of, as economists say, comparative advantage. Comparative advantage takes place when a particular place makes a specific type of goods more efficiently than other places due to certain advantages – labor, skill level, proximity to natural resources, etc.

One big obstacle, however, is the Common Agricultural Policy. This policy has survived many twists and turns as additional countries have joined the European Union. Today, every member country, including Germany, has some farmers benefiting from some aspect of the policy or another.

The purpose of the European Union and its predecessor Common Market was, and is, yes, to produce prosperity for Europeans. The principal prerequisite to that prosperity, however, was not economic growth, per se, but rather an ability to avoid the horrible wars that wracked Europe in the first half of this century.

Despite the tremendous cost of the Common Agricultural Policy, buying off Europe’s farmers was a small price to pay to get their acquiescence into the surrender of national sovereignty that the European Union represents. In fact, almost anything is cheaper than a world war, and the whole set of postwar institutions, notably NATO and the Common Market, have to be given credit for avoiding that fate.

Now, however, the world is different and new realities need to be faced. In most of Western Europe, the farming block has been transformed from a significant voting block to a very small minority maintaining its hold on public policy either by the populace’s nostalgic identification with the simple yeoman or, as too often has been the case in France, via revolting displays of thuggary. There is simply no need anymore to pander to this particular group.

Perhaps Europe will choose to maintain some subsidies for poorer countries. This is probably not desirable and may not even be necessary, but if they are deemed politically so, then they should be restricted to a modest program to help only poorer countries. So Portugal and Greece may get a little welfare, but the U.K., Germany and France should be excluded all together from any subsidy programs.

The truth is that Europe is strong now, and European consumers and industry are best served by being free to buy the best product at the best price. New entrants to the market are best served by not getting entangled in a subsidy web but by insisting only on open access to markets.

The prospect of integrating Eastern Europe is a true crisis for the European status quo. Crises, however, are the moment when real change is often possible. Used wisely, this crisis can be the impetus to long lasting reform in the Common Agricultural Policy which opens the doors for an expanded Europe, a more prosperous Europe, and a more dynamic trade in goods and services around the world.  EXP